French Stocks Stay in Germany’s Club Despite Turmoil

The endless political agony of Greece has once again pushed the euro zone and its debt morass to the forefront of investor concerns.

Naturally, the bond market is where fissures between member states yawn widest. Greek and Portuguese yields blew out first after the inconclusive Greek vote. Then, on Wednesday, Spanish and Italian yields turned sharply higher while Germany’s fell to record lows–the only haven left in euro land.

French yields, by contrast, inhabit a no-man’s-land. At around 2.8% for 10-year issues, they’re nowhere near as ugly as some, but still a way above Germany, which is paying 1.2% to borrow.

However, when it comes to equity markets, the tale is different. There, for the moment, despite some strong recent outperformance both of Germany’s DAX, and, indeed, Germany’s economy, which posted record export data this week, French and German stocks remain in lockstep.

According to data from HSBC, the rolling, 20-week correlation between the two is at a very high 0.94. It has been high for well over a year now.

Like the DAX, the CAC-40 remains extremely ‘risk on’, said HSBC strategist Mark McDonald. In other words, general risk appetite decides its fate, not goings-on in France, new socialist president and all.

Of course, remaining in Germany’s club may not do the CAC much good if the market backdrop becomes resolutely ‘risk off’ as a result of Greek instability.